After dipping during the “pause” in September, new home sales rebounded in October. Some slowdown in housing was expected due to declines in consumer confidence and the uncertainty produced by the partial government shutdown. However, the October data add more evidence that the recovery for housing will continue into the new year.
For the economy as a whole, job creation continues to be positive, although weaker than hoped. The Bureau of Labor Statistics reported that November payroll employment grew by 203,000, plus an additional 8,000 for prior month revisions. The job openings rate continues to rise, as jobs are posted but not filled. This is particularly true in construction. For the month of October, there were 124,000 unfilled positions in construction firms– the highest level since May 2008.
Gross domestic product growth surprised on the upside for the third quarter, coming in at 3.6%. This was higher than the earlier estimate of 2.8%, but the bump in growth largely came from inventory investment: for 1.7 percentage points or nearly half of the 3.6% total. As a result, NAHB expects growth to slow sharply in the final quarter of the year.
Against this economic backdrop, October new home sales showed strength after a weak September. Rising 25% from the September pace, the annualized rate for October came in at 444,000, reaching a level established earlier in the year. Month-supply totaled 4.9, the lowest inventory measure since the second quarter. In fact, for October the total inventory of completed, ready-to-occupy newly built homes remains low at only 42,000 nationwide.
With respect to new home financing, Census data show that the cash share of new home sales totaled 7.37% during the third quarter, near the recent high of 7.89% of the third quarter of 2011. FHA-insured mortgages came in at 17% of the market for the third quarter. But interest rates remain low by historic standards. Data from the Federal Housing Finance Agency indicate that the average contract interest rate for October for newly built homes was 4.32%.
Looking at individual markets, the NAHB/First American Leading Markets Index rose slightly to a value of 0.86 in December, up from 0.85 in November. The index measures progress for employment, home prices, and home building based on normal market conditions. So the 0.86 measure indicates that nationwide, housing markets are operating at 86% of normal conditions. In December, 54 metros were at or above a value of one, meaning those markets had returned to or were above their last normal levels of activity. These markets were dominated by energy and agriculture states and smaller markets that did not see rapid declines in production and prices in recent years.
In other positive news for home builders, lending conditions for acquisition, development, and construction (AD&C) loans continue to improve, although a considerable lending gap between demand for AD&C loans and current loans persists. NAHB survey data indicate that for the third quarter, only 9% of those surveyed reported that lending conditions deteriorated, with 28% noting improving conditions. And FDIC data show that the stock of outstanding AD&C loans grew nearly 5% during the second and third quarters of the year.
Overall, total private residential construction spending was up 17.8% from a year ago, a useful measure of the progress the housing recovery has made recently. Since market lows in June 2009, single-family construction spending is up almost 87%, multifamily 164%, and remodeling-related improvement spending 17%. Over the course of 2013, single-family spending is up 14%, multifamily 22%, and remodeling 3%.
In analysis news, economists at NAHB recently examined how comprehensive tax reform could affect business related advertising and tax accounting, with a focus on construction firms. Additional analysis examined average electric utility bill by state and geographic breakdown of residential trade contractor employment after the Great Recession.